Gap to split, with Old Navy getting independence

The retailer said Thursday it’s creating two independent publicly traded companies — low-priced juggernaut Old Navy and a yet-to-be named company, which will consist of the iconic Gap brand, Banana Republic as well as the lesser known names Athleta, Intermix and Hill City.

The San Francisco-based company said the spin-off will enable each company to focus on flexibility and pare down costs.

The company also said it will be shuttering 230 Gap brand stores over the next two years. A year ago, the Gap brand had 725 stores worldwide. After the closures, which also include the 68 stores it shuttered this year, the chain will be down to roughly 427 stores. It expects to have more than 40 per cent of Gap’s business coming from online after the restructuring.

Gap’s stock surged 25 per cent in after-market trading.

The split up, which followed a comprehensive board review, comes as Old Navy has been thriving, while Gap still hasn’t been able to regain its footing despite numerous attempts to fix the business. Once the go-to place for casual clothing, Gap has been mired in a sales funk for years, hurt by increasing competition from the likes of Target and Amazon.

“This is great news for Old Navy, no longer having its success consistently outweighed by sluggish performance by Gap,” said Tiffany Hogan, senior analyst at Kantar Consulting. “But for the Gap, this seems like potentially a last significant effort to help the brand find its place in a market where it has lost relevance.”

She noted that in order for Gap to succeed, it needs to find the right mix of style and basics for its stores, while getting a better grasp of who its customer is.

Separately, Gap Inc. reported that Gap’s overall sales at stores opened at least year were down 1 per cent during the fiscal fourth quarter. By division, the Gap brand posted a 5 per cent drop, while that figure at Banana Republic was down 1 per cent. Old Navy posted sales that were unchanged from a year ago. But that was on top of a 9 per cent gain in the year-ago period.